Rise in bad loans alarming

Rise in bad loans alarming

Lax governance to blame

THE latest report by Bangladesh Bank (BB) merely confirmed what has been common knowledge for some time. We now know that about half of the more than Tk20,000 crore stressed loans belong to ten banks of which six are state-owned banks. Those loans deemed to be going bad or irrecoverable has a lot to do with the lack of efficiency and transparency in the manner that loans are sanctioned. With 'stressed' or non-performing loans having crossed the 13 per cent mark, these financial institutions' profitability is put at risk. While this paper has repeatedly stressed on the need for reforming the banking sector in light of high profile scams that have rocked state-owned banks in the last fiscal, the reality is that too little has been done to plug the loopholes in the system.

Indeed BB has specifically stated that the lack of corporate governance that is prevalent in some state-owned banks runs the risk of causing instability in the financial sector as a whole. The Financial Stability Report (FSR) 2013 has pinpointed eight major areas which include strict loan classification and provisioning that may help restore financial stability. Other areas that need to be addressed immediately are ensuring ample liquidity, installation of automated payment and settlement system, etc. But the fundamental area of concern remains vagueness in the credit approval system. Unless political patronage is contained, transparency ensured, lent credit monitored and recovery ensured, majority state-owned banks will continue to bleed public funds.